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Finding the Balance — Building vs. Buying Technology for your Start-Up

Building vs. Buying Technology for your Startup
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Technology is the silent partner to many business operations. When implemented well, it can improve business efficiency, cut costs, increase reach, up customer acquisition, create competitive advantages, and more. In the other direction, when technology is implemented poorly, the effects can be as far opposite as “detrimental,” especially to startups.

Given the extreme risk vs. reward of including technology as part of your business strategy, it’s critical you internalize guidelines to know where to invest in building software tools in-house, when you should buy off the shelf, when to keep the human factor, and when to go hybrid.

First, know who you are.

Many online companies, especially new ones, make the mistake of believing they are technology companies when they are not! Many are retail, business services, food industry, delivery, media, sales, video game, and marketing companies that use technology to accent their business operations.

Take a moment to think about some of the apps on your phone, particularly the types of apps that come from companies that are completely online — what market are they really in? Many operate entirely through the Internet, but merely being dependent on Internet to run an operation does not make a technology company.

Lets pound this hard with an analogy:

Say there is a company called Timothy’s E-Lemonade (TE), who delivers lemonade to doorsteps 3 months a year via a mobile app that customers place orders through. Is this a technology company?

While TE may be dependent on databases, servers, and evolution in mobile software, it has as little business innovating in these areas as companies like Oracle, IBM, Apple, Facebook, and Microsoft have in lemon juice/sugar balance. Why?

Because Timothy’s Lemonade is not a technology company, it’s a lemonade delivery company, whose resources are best spent sourcing the freshest lemons, locating partners for distributed sales tactics, and improving customer experience. While it may have it’s own small software team, it should not spend lots of time on database theory, programming languages, or computer science algorithms as a core part of it’s business.

For TE to invest in innovating on technology that could be purchased off the shelf could be detrimental to its growth and the lemonade-thirsty people of the world.

To incorporate a technology component into your business, you must first develop a firm grasp of what your business is about and what industry it’s really in. Don’t get caught up in innovating in the wrong areas just because you are online – everyone is. Your vision, mission statement, or even just a guiding star is key to making sound day-to-day business-tech decisions. Simply put, you’ll know where you should be competing, and where you should not.

Features, Quality, Speed

Now that you have a firm idea of what your business is and where it should and should not compete, we can talk about an old decision-making paradigm. Features, Quality, Speed — pick two, allow the third to suffer.

Let’s be clear, “allow the third to suffer”, not go away, not disappear. Simply, suffer in comparison to the chosen two for reasons of competitiveness.  The three sections can be thought of as a Venn diagram:

buying tech start up

​To bring back Timothy’s E-Lemonade, that business would likely do well to generally land somewhere between speed and quality for many operations. While it’s in the food/beverage industry, it’s not a grocery store. It’s not focused on a wide selection of different beverages and foods, but rather, it’s focused on the best lemonade and speedy doorstep delivery.

By focusing on speed, TE can make a wise technology decision buying proven off the shelf GPS technology for their drivers, rather than investing in software engineers versed in Dijkstra’s algorithm — a computer science algorithm used for finding shortest distances in road networks, amongst other things. Also, by putting extra care to quality, TE can again allocate more of it’s resources in finding the perfect sugar to lemon juice ratio to create the world’s best tasting lemonade, or maybe even innovate in the area of cup insulation to keep the juice cold on arrival.

TE won’t get caught up investing lots of its resources to compete with the vast feature selection of Starbucks or Pizza Hut, or worry about competing with dine-in at all for that matter. TE’s mission is to destroy the 5-year-old’s cardboard dream stand down the street. It will succeed by making smart technology investments to accent it’s own processes, and avoid technology investments that compete outside it’s focus.

SEE ALSO: Why Every Creator Should Learn to Code

Now, think a bit about your business. What areas are important to you in the Venn diagram above? I’ve read and heard people say, “We want an equal balance of all three:  features, quality, and speed.  We want that sweet spot in the middle.” Nope, nope, and more nope! Be wary of that “sweet spot in the middle” — it’s colored red for a reason. This is where you stretch yourself thin, attaining the smallest amount of everything, never quite championing anything.  A competitor will beat you in speed, another in quality, and another in features.

Know who you are, and pick where you want to compete. This applies to every sub-project of your organization. You can generalize it for the whole company, or choose it on a project-by-project basis.

If it Ain’t Broken, Don’t Fix It , or Fail Fast.

Technology often replaces the human factor. This is a fine line to walk. Often, mundane tasks can be automated to clear up human time so that the people of an organization can focus on more important priorities. From squeezing lemons to inventing a new kind of lemon squeezer, automation can be generalized as a good thing. But, is it cost cost-effective for you to take out the human factor with custom technology? Not always. It’s ok to let humans do some level of the mundane work, so long as it’s scaling well enough.

All organizations have their unique internal processes that don’t align well with off-the-shelf solutions and take up valuable human resources. It’s at this point, that you may consider developing in-house solutions to alleviate these pain points. Some of the first questions that should be asked: “how much will this cost to build?” followed by “how long will we use it,” and “is there another way?”

If the answers start to sound like “something significant,” “not that long,” and “yes,” then you may want to take a step back and think through your budget. Does it allow for some experimentation? This step back doesn’t imply “don’t do it,” it means, make sure you have some runway to explore and are willing to the eat the cost of failure knowing that all technology is an iteration of previous technology, and all code is throw-away — the solutions you come up with today come with their own bugs, costs, maintenance, and life spans. Be able build, measure, learn, and fail fast.

Or, go hybrid. Consider the alternatives to inventing the trash-truck-lemon-squeezer-delivery-mobile and go with upgrading the hand served squeeze machine back at HQ. It’s not the stars, still has a human factor, but is using technology to accent your process at a more sound investment cost.

If the competitive advantage of building custom technology doesn’t outweigh the investment, or you’re not ready to fail fast with some exploratory budget, then hold off and focus resources elsewhere.

Business is a Money Making Machine

At the end of the day, business is a money making machine. To be successful, you must keep your eye on the prize — and that’s to make money. The ideas above are in the vein of how to choose technology investments to accent your business, and just for the speed-readers, let’s highlight the main points:

  • Know Who You Are – Have a Guiding Star
  • Features, Quality, Speed – Pick Two, Let the 3rd Suffer
  • If It Aint Broken, Don’t Fix It
  • Technology as an Iteration – Build, Measure, Learn
  • Fail Fast
There are stacks of literature available that explore these concepts in depth — and this list is by no means a one-stop shop. Take some time to Google around for the concepts and absorb other perspectives. Try a few. Internalize your own personalized set of guidelines, and go make some “cash mohney.”
  • author's avatar

    By: Chris Page

    Having spent over a decade pioneering the unknown in startups, Chris Page brings a multiple hat ethos to the engineering team here at Tidal Labs.

  • author's avatar

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